201508 Corporate Presentation PMAM3 v18(EL)

7/23/2019 201508 Corporate Presentation PMAM3 v18(EL)

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Corporate Presentation


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This presentation may contain certain forward-looking statements and information relating to Paranapanema S.A. (the

Company) that reflect the current views and/or expectations of the Company and its management with respect to its

performance, business and future events. Forward-looking statements include, without limitation, any statement that may

predict, forecast, indicate or imply future results, performance or achievements, and may contain words and/or any other

phrases of similar meaning. Such statements are subject to a number of risks, uncertainties and assumptions. We caution you

that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations,

estimates and intentions expressed in this presentation.

In no event, neither the Company nor any of its subsidiaries, affiliates, directors, officers, agents or employees shall be liable

before any third party (including investors) for any investment or business decision made or action taken in reliance on the

information and statements contained in this presentation or for any consequential, special or similar damages.

This presentation and all its contents are proprietary information and may not be reproduced or otherwise disseminated in

whole or in part without the prior written consent of the Company. The information contained in this presentation is subject to

change from time to time without notice and the Company is under no obligation to keep you advised of such changes

Disclaimer


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1

2 5

4

3

6Company Overview

Financials

Copper Sector

Agenda

Business Model

PMAM at a glance


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1

2 5

4

3

6Company Overview

Financials

Copper Sector

Agenda

Business Model

PMAM at a glance


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Market(finishedproducts)

PMAM at a glancePositioning overview

Semi-Finished(rods, wires, tubes,

bars, laminates, etc.)

MINING SMELTING & REFINING DOWNSTREAM(Products)

PMAMs PresenceCopper flowchart

Largest Brazilian supplier of

copper rods and wires

3 processing plants forrefined copper and scrap

Sole Brazilian cathode

producer

Primary Copper~280 kt

Copper Products~180 kt

Sole Brazilian smelter and refiner, with strong positioning in the value chain

By-

products(H2SO4, anodic

slime and slag)

Cathode(~99.9% copper)

Anode(~99.5% copper)

Blister(~98% copper)

CopperConcentrate

(~28% copper)

Copper Ore(1.0% copper)

Gold

Silver

PMAM is present

Cathodes Sales

~100 kt

Scrap


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6

Operations

Products and Brazilian Market Share (2014)*

BRAZILPERU

CHILE

Primary Copper & Copper Products

Copper

Concentrate

Copper Products

Copper Products

~2,000

employees

Cathode

53% Share

Rods and Wires

42% Share

Tubes

46% Share

Rolled

30% Share

Bars

15% Share

*Source: Company, Sindicel and CRU

PMAM at a glanceBusiness segments and operations

Diversification between products and markets protects margins

Segments Breakdown (% of 2Q15 Revenues)

Copper ProductsB2B and B2C

(semi-finished and

finished products)

By-products(B2B products)

100% of refined

copper in Brazil

Very low

associated cost

Different types of

sectors and clients

Domestic Market

Export Market

Primary Copper

(refining - cathodes)

2Q15

12%

88%

68%

32%

37%

63%

30%

57%

13%


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1961 Paranapanema

was established

1971 IPO

Key Operations

Mining & Construction

Focused on Non-ferrous metals

Became largest Brazilian Copper producer

Capacity Expansion and Technology

upgrade by 2012

Listed on BM&FBovespas Novo Mercado

Paranapanema 2018 Project (PMA-2018)

Recovery begins in 2013

Re-defined business model:

Returns on added capacity

Change in management:

Managing-by-the-penny

Management alignment:

Variable compensation

Long-term gains and better processes legacy

PMAM at a glanceRecent organizational emphasizes corporate governance

New management has shifted focus to increase ROIC

Timeline Shareholding Structure

Locals

24%

17%

12%7%

6%

11%

11%

12%Foreign

Individuals


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PMAM at a glancePMA 2018: long term plan to sustain profitability and stabilize results

Maximizing productivity

on existing assets

Growing abovemarket average

Adding selected new

opportunities surrounding

existing assetsIncrease ROIC

metrics

Meritocracy Cultural

Reshape

Process

ROIC-centered management reflected in share price


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124151 140

120

2013 2014 2016E 2018E

124

69

144120

114%

57%

120%

100%

2013 2014 2016E 2018E

257 238280 290

2013 2014 2016E 2018E

2,047 2,0721,840 1,748

615 554 515 489

2013 2014 2016E 2018E

Note: E = expected

PMAM at a glancePMA 2018 KPIs: a guidance to recovery

Cathode Production (Kt) Working Capital (# days)

Transformation Cost and SG&A (R$/t) Capex (R$ Million) and as % of Depreciation


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Priority

OPERATINGEXCELLENCE

Impact Results

Cost controlTransformation cost/t: Reduced by 5% (2014x2013)

SG&A: Reduced by 17% (2014x2013)

Cast & Roll ramp-up From 40% to 68% capacity utilization

Capex Reduced by 65% (R$69MM vs. 14 budget)

HUMANCAPITAL

Board of Directors

Audit Council

Committees

70% replaced, Independent Chairman

40% replaced

Monthly operational cycle

Headcount

C level change

-15% (2014 x 2013)

65% (1/3 downsized / 50% replaced)

Long term planning 5 year business plan PMA 2018OTHER

PMAM at a glanceEnhancements achieved so far


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Gross Profit and Gross Margin EBITDAa and EBITDAa Margin Free Cash Flow1

Net Profit and Net Margin

1 Free Cash Flow: operating cash flow - capex2 Plain 2014 EBITDA Margin, Bloomberg data

Accumulated Profit/Losses Peers EBITDA Margin (%)2

0.52.0

5.2

9.6

14.0 14.4

Jiangxi Aurubis PMA MagnesitaUsiminas Ferbasa

Locals exposed to Metallurgy

Smelters

(R$ MM e %)

PMAM at a glanceFinancials

-15

-72

13180 74

-108-1,3%

-6,6%

10,6%

6,1%6,1%

-9,3%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Net Profit Net Margin

-234

-303

-169

-97

32

-73

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

75 80105

123 125

5

6,9%7,4%

8,5%9,4% 10,3%

0,4%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Gross Profit Gross Margin

5773

109 120 109

4

5,2%

6,7%

8,8% 9,1% 9,0%

0,4%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Adjusted EBITDA Adjusted EBITDA Margin

152

-29

397

84168

-4501Q14 2Q14 3Q14 4Q14 1Q15 2Q15


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1,079999

1,590

174

30470 42

Cash 2015 2016 2017 2018 2019 Gross Debt

Working Capital (R$ Million)

Net Debt/LTM EBITDAaCash & Debt (R$ Million)

PMAM at a glanceFinancials: strong balance sheet and efficient working capital usage

Maturity Schedule (R$ Million)

Cash = ~2 years of amortization

1.165 1.246 1.3331.590

1.995

506257 285

511

868

659

988 1.048 1.079 1.127

2Q14 3Q14 4Q14 1Q15 2Q15

Gross Debt Net Debt Cash

2,2x

1,5x

1,5x

1,0x

0,8x

1,6x

2,5x

4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

665

381 348 326

783

2Q14 3Q14 4Q14 1Q15 2Q15


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2010 2011 2012 2013 2014

PMAM at a glanceSector overview: copper market outlook

0

5

10

15

20

25

30

35

40

1992 1997 2002 2007 2012 2017 2022 2027

Possible Projects

Probable Projects

Highly Probable Projects

Base Case Production Capability

Primary Demand

Global copper imbalance to sustain high TC/RCs that together with efficient risk management should continue to

benefit margins

Global Copper Production and Primary Demand (Mt)1 TC/RCs (US$/t and R$/t) 2 Quoted Benchmark

1 Source: Wood Mackenzie March 20152TC/RC = Treatment Charge/Refining Charge (discount miners give to smelters to transform concentrate in refined copper)3 Bloomberg, Company data

Smelters: Industry Bottleneck (Mt) 1 Metal Premium (US$/t) Cathode3

Domestic Premium

Exports Premium16 16 17

18 1919

21

15 15 1616 17

1819

2010 2011 2012 2013 2014 2015E 2016E

Concentrate Production Smelter Production

254 310 352388

510610

447 519

688838

1,199

1,824

2010 2011 2012 2013 2014 2015 YTD

US$/t R$/t


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Comparable smelter valuations Country Capacity (Kt) Costs (US$ M) Cost/t

First Quantum Sentinel Smelter Zambia 300 690 2,300

Jinchuan Copper (phase 1) China 400 2,000 5,000

Freeport / PT Aneka Tambang

(estimate)Indonesia 300 2,200 7,333

Average (in US$) 1,630 4,878

Country Capacity (Kt) Market Cap (US$ M)* Cost/t

Paranapanema Brazil 280 416 1,486

PMAM at a glanceHigh substitution cost restraining increase in smelting capacity

Smelting capacity demands large investments, not to mention working capital. Therefore, additional

capacity is unlikely at current TC/RCs levels

Source: Macquarie Research

*PMAM3 share pri ce of R$3.94 and US$/R$ rate of 3.02 as of May 11, 2015


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EBITDA Margin (%) Smelters/Refiners Net Margin (%)

EV/EBITDA 2015 P/E 2015

Source: Bloomberg. 2014 figures and multiples updated as of May 11, 2015

0.5

2.0

5.2

Jiangxi Aurubis PMA

0.4

0.9

2.6

Jiangxi Aurubis PMA

13.2

8.2

5.8

Jiangxi Aurubis PMA

29.0

14.4

5.9

Jiangxi Aurubis PMA

PMAM at a glanceComparable companies

Smelters with similar operation to Paranapanema are the correct peers to be compared with


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PMAM at a glanceYTD share price performance (+5%*)

Source: Bloomberg

* Until August 3, 2015

jan-14

jan-14

mar-14

abr-14

mai-14

mai-14

jun-14

jul-14

ago-14

set-14

out-14

nov-14

dez-14

jan-15

fev-15

mar-15

abr-15

mai-15

jun-15

jul-15

PMA Aurubis Vale Gerdau Usiminas Magnesita Fesa Ibov Copper CSN

(Base 100)


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Establishing a culture of cost and asset efficiency

ROIC driving decision-making process

Strict capital usage policy

Risk management minimizing results volatility

1

2

3

4

5

PMAM at a glanceKey investment highlights

6

Sustainable results maximizing shareholders returns

7


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2 5

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6Company Overview

Financials

Copper Sector

Agenda

Business Model

PMAM at a glance


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Constitution in 1961 heavy construction IPO in 1971

Pension funds take over the control (1996)

Concentration in non-ferrous (largest copper producer in Brazil)

Financial (2005), corporate and fiscal restructuring (2009)

Private capital increase (2008)

Investment plan for expansion and modernization R$702 million Organizational restructuring

Construction of tubes plant in Utinga (Santo Andr SP)

Sale of non core assets

Dias dvila (BA) capacity expansion Entrance to Novo Mercado (BM&FBOVESPA)

Launch of new tubes plant in Utinga

Change of CEO (commodity sector professional) New risk management policy

Processes reengineering

60% of the leadership is replaced

PMA 2018 Project

Operational Efficiency + Risk Management = Sustainable Results2015 - 2018

2014

2013

2012

2011

2000 - 2010

1960 1999

Company OverviewHistory marked by several restructurings and poor risk management

Current focus is to maximize capacity utilization, reduce costs and improve risk management seeking sustainable

and improved results

PMAcontractorand

miner

Transitiontocoppe

r

refiner

Stableresultsa

nd

growth


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Business Segments*

PrimaryCopper

(34%)

C

opperProducts

(59%)

Co-products

(7%)

Rods: 220 kt Wires: 80 kt

Tubes: 35 kt Laminates: 26 kt Bars: 12 kt Fittings: 4 kt

Diasdvila

Utinga

andSerra

Diasdvila

Diasdvila

H2SO4

Sulphuric Acid: 560 kt

Gold

Silver

Anodic Slime: 540 t Slag: 396 kt

Cathodes: 280 kt

*Numbers refer to installed capacity and percentages refer to share of 2014 Net Revenues

Company OverviewBusiness segments and installed capacity


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Competitors

Domestic:

- Ibrame

- Prysmian

Foreign:

- Codelco (Chile)

- ILO (Peru)- Aurubis (Germany)

- Antofagasta (Chile)

- Glencore (UK/Switzerland)

Domestic:

- Termomecnica

- Cecil

- Ibrame

- Plasinco

Foreign:

- Nacobre and IUSA (Mexico)

- Ceper and Indeco (Peru)- Nexans (Canada)

- Aurubis (Germany)

Domestic:

- Termomecnica

Foreign:

- Aurubis (Germany)

Products

Copper Rod Drawn Bare Wire

Cathodes

Laminates

Copper Products

Semi-Finished FinishedPrimary Copper(smelting and refining) Co-Products

Semi-Finished

Copper Products

Finished

Industrial Tubes Bars and Profiles

Tubes Connections Wires

Anodic Slime

Sulphuric

AcidIron

Silicate

Domestic:

- Galvani

- Vale

Foreign:

- Aurubis (Germany)

- Glencore (UK/Switzerland)

Company OverviewBusiness segments and competition overview


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44%

56%

78%

22%

35% 65%

34%

58%

8%

49%

27%

9%

4%3%

10%

Argentina

Japan

USA

UKOthers International

Trading

Companies

32%

27%

7%

7%

6%

5%

3%2%

12%

Eletroelectronics

Civil

Construction

Enamelled

Re-sale

Energy

Mecanic and

Metallurgy

Cooling

FertilizerOthers

2014 Revenue Per Segment and Markets

Domestic Market

Export Market

Revenue Per Sector

Primary Copper

(refining - cathodes)

Copper ProductsB2B and B2C (semi-finished and finished

products)

By-products

(B2B products)

Exports Per Region

100% of refined

copper in Brazil

Very low

associated cost

Different types of

sectors and clients

Company OverviewRevenue breakdown per segment

Segment diversification and strong positioning reduces impacts from markets fluctuations

i


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Production plants

Distribution center

Paranapanema has 3 processing plants and one distribution center

Proximity between facilities and main customers (South and Southeast

regions, countrys highest GDPs) is a strategic advantage

Imported copper concentrate arrives at Arat Port (Bahia), 24 km distant from

the plant

Estimated 62% market share in scrap origination all over Brazil

Sulfuric acid sales (by-product) within a 50km radius

Copper Concentrate

Origin

Utinga Santo Andr(SP)

Production of copper and

brass bars, wires,

laminates, tubes and

bronze

Serra (ES)Production of copper and

bronze fittings for civil

construction

Dias Dvila (BA)Smelting and refining of

primary copper, cathodes,

rods, drawn wire and by-

products

Chile

Main supplier

of copper

concentrate

Peru

Supplier of

copper

concentrate

Production Facilities and Raw Materials Supply

Company OverviewWell located facilities: smart logistics and arbitrage between domestic and

export sales

Casting

Refining

Electrolysis

Lamination

Stretching

Copper concentrate

(Third-party raw materials)

Estimated time betweenpurchasing concentrate and

delivering products

1month

10

Days

10

Days

22

days

10

Days

10

Days

Total cycle: 90 days

Production Timing


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1

2 5

4

3

6Company Overview

Financials

Copper Sector

Agenda

Business Model

PMAM at a glance

B i M d l


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Risk

Management

- R$ 5 bi

- R$ 4 bi

Tota

lRevenues

MetalRe

venues

TC/R

C+

Premiu

ms+

By-pro

ducts

Me

talCost

Financial

+ D&ACT* +

SG&A

EBTEBITDA

*CT: transformation cost

Risk Management Premium Management Costs Control

Mitigate FX and commodity volatility

impact on results

Hedge of metal exposure

Strict dollar-denominated cash flow

hedge

Well structured governance, policies and

controls

TC/RC

Optimization of premium matrix

Price premiums denominated in US

dollars

Premiums not linked to LME quotes

Arbitrage between products to maximize

premiums

Implementation of Zero Base Budgeting

Leveraging on improved technologies

Processes/plants consolidation

Increasing operational leverage

More efficient funding structure

Transformation costs mostly in Reais

(95%)

Business ModelPremium management and cost control aligned with efficient risk

management

USD

USD USD

BRL

USD


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Robust market risk governance structure with risk policy

defined by the Board of Directors and overseen by a Risk

Committee on a weekly basis

Risk strategy seeks to minimize or eliminate items with no

control such as metal prices and FX rates, so management

can focus on improving transformation and logistic costs,

premiums, volume mix and SG&A expenses

PMAs market risk policy does not allow speculativepositions, and established segregation of duties to ensure

accuracy of metal and FX rate exposures

Market Risk Hedge Strategy

PMA hedges its exposures against movements of metal prices,

foreign exchange, and interest rates

Hedge instruments comprises derivatives (swaps and NDFs)

and/or financial assets and liabilities (Debt, Payables,

Receivables). PMA does not operate directly in any MercantileExchange and is not affected by daily margin calls

Metal exposure daily VaR is USD 250,000 (copper price

variation) and FX Net Exposure is covered between 70-100%

for up to 12 months forward

Differently from other soft commodity players, PMA keeps

metal cost floating through swap transaction and fixes the

cost when inventory is sold

-15,0%

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Gross Margin Avg. USD Change Avg. LME Change

Hedge efficiency = low

volatility in margins

2014 exposure in: 10% movement in asset value (USD M impact)

USD 43

Copper 1

Zinc neutral

Lead neutral

Tin neutral

Gold neutral

Silver neutral

USD M impact in Gross Profit 44

2014 Net EBIT Sensitivity

Business ModelMarket risks and hedge strategies highlights


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MineNegotiation

PMA buys copper with TC/RC discount [TC/RC]over LME with M+3 QP

E.g.: M+3 LME US$ 500/t TC/RC

Shippingdate

Mine ships the Cu Concentrate with temporaryLME TC/RC with QP of M+3

E.g.: US$ 6.000/t - US$ 500/t

QP Settledate

Result = The price to be paid is the average LME ofthe 3rd month from shipping date less TC/RC.

E.g. US$ 6500/t 500/t = US$ 6000/t

Financing

PMA finance the purchase of the copper (in USD)with fixed QP using Letter of Credit / Forfait.

SalesNegotiation

Commercial team agrees pricing calculationwith customer

E.g.: (LME QP + Premium)*USD rate + Interest

(to cover payment terms)

Invoicing date

QP in sales are usually past prices (E.g. S-1 oraverage LME of last week).

The USD portion of the price is converted intoBRL upon invoicing using the agreed PTAX

Receivables

Domestic sales are collected in BRL

Exports has M+1/+2 QPs and are collected inUSD.

Purchase Flow (Cu Concentrate) Sales Flow (Primary and Copper Products)

Copper market uses a Quotation Period (QP) of the LME as a price reference + Premium to define the

settlement price of a transaction

Business Model Copper Market StandardsMetal hedging to neutralize metal prices volatility

Total Result: + Copper + TC/RC + Premium - Copper

=

+ TC/RC + Premium


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Results of copper metal hedging are reclassified from finance revenue/expenses to inventory, adjusting

the historical metal cost to market value

PMA hedges its volume exposure with SWAPs (NDFs), selling inventory with fixed QP in the nearby and buying copper in the

future with open QP

Metal fair value hedge accounting program allows inventory Mark-to-market (MtM), which monthly variations on LME should be

offset by variations on the derivative side

Within the month sales (and QP confirmation) the derivative volume is liquidated with the same sales volume

Using QP derivatives, PMA brings sales QP to LME month average, whilst inventory and its monthly variation are also marked-to-

market using LME monthly average. In this way, both LMEs for sales and cost are under the same LME QP neutralizing its effect

Business ModelMetal hedge to neutralize metal prices volatility


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USD Long

95% of PMAsrevenue are in USD

(around USD 1.3bi/year)

USD Short

90% of PMAs debtand suppliers are in

USD(around USD 0.9bi/year)

USD Net

PMAs uses NDFs to

hedge USD netexposure

Net Exposure:

- PMAs has a riskmanagement teamresponsible for monitoringUSD exposure.

- Exposure is coveredbetween 70-100% for up to

12 months forward

Hedge accounting: the result of USD hedging instruments is classified

as Other Comprehensive Income under Shareholders Equity account.When the hedge is closed, the result is recognized in P&L.

Accounting

Business ModelCash flow hedging and hedge accounting to avoid FX rates volatility


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Operational efficiency and higher ROIC will position PMA as a dividend play

Risk

management

Increasing Margins

and ROICDiscipline in capital

usage

Capacity utilization +

costs reduction

Relevant marketshare in a region

with protected

premiums

Focus in

operational and

commercial

efficiency

Reduce capitalapplied to

business,

especially

inventories

Metal and cashflow hedges

strongly

reducing

volatility on

results

Business ModelEquity story: copper fixed income


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2 5

4

3

6Company Overview

Financials

Copper Sector

Agenda

Business Model

PMAM at a glance


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Sales Volume*(K t)

Production stoppages during 1H14

(maintenance)

5% recovery in production volume during 2H14

* Sales volume net of intra-operating eliminations

Production Volume(K t)

Sustainable trend already clear, despite production and sales impacted by domestic environment and

production stoppages

244

366

305

2012 2013 2014

246

330

267

2012 2013 2014

Net Revenues(R$ M)

4,026

5,549

4,734

2012 2013 2014

Better commercial arbitrage opportunity

between products and markets than in 2013

Lower sales volume and LME quote in 2014

impacted Revenues

FinancialsProduction, Sales and Revenues


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Transformation cost down 5% even considering 2014 inflation

Gross Profit and Gross Margin(R$ M)

Margin gain: higher operating efficiency and Transformation Cost

reduction

COGS(R$ M)

184

395 384

4.6%

7.1%

8.1%

-01%

00%

01%

02%

03%

04%

05%

06%07%

08%

,0

50,0

100,0

150,0

200,0

250,0

300,0

350,0400,0

450,0

2012 2013 2014

Gross Profit Gross Margin

3,361

4,570

3,798

480

584

5533,842

5,154

4,350

2012 2013 2014

Metal Cost Transformation Cost

-5%

Efforts to reduce Transformation Cost resulted in Gross Margin gain, despite decrease in Net Revenues

FinancialsCOGS and Gross Profit


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Operating efficiency, costs reduction and hedge accounting are reflected in EBITDA and Net Profit

20 times growth

2015: Accumulated Losses could be fully compensated

Adjusted EBITDA(R$ M)

Recurring EBITDA Margin gain

Net Profit(R$ M)

20x higher

(206)

6

124

2012 2013 2014

125

332358

3.1%

6.0%

7.6%

2012 2013 2014

EBITDA EBITDA Margin

FinancialsAdjusted EBITDA and Net Profit


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Efforts in reducing expenses and risk management policy contributed to results recovery

Financial Result(R$ M)

Hedge Accounting adoption already presented relevant effect in 2014 Efforts in expenses review resulted in 15% decrease in recurring

expenses

Zero Base Budgeting will allow further reductions

Recurring Expenses(R$ M)

-15%

138

168

143

2012 2013 2014

(71)

(163)

22

2012 2013 2014

FinancialsExpenses and Financial Result

l


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-261

-482

604

2012 2013 2014

Free Cash Flow (R$ M)

Debt Maturity Schedule (R$ M) Net Debt/LTM Adjusted EBITDA

Cash & Debt (R$ M)

FinancialsImproving Balance Sheet and Free Cash Flow

1,079999

1,590

174

304

70 42

Cash 2015 2016 2017 2018 2019 Gross Debt

Cash = ~2 years of amortization

1.165 1.2461.333

1.590

1.995

506 257 285 511

868

659

988 1.048 1.079 1.127

2Q14 3Q14 4Q14 1Q15 2Q15

Gross Debt Net Debt Cash

2,2x

1,5x

1,5x

1,0x

0,8x

1,6x

2,5x

4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15


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1

2 5

4

3

6Company Overview

Financials

Copper Sector

Agenda

Business Model

PMAM at a glance

C S


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Malleable

& Ductile

Corrosion

Resistant,

Machinable &

Formable

Excellent

Conductor &

Heat

Transferer

Copper Key Physical Properties

Coppers benefits extend beyond mechanical characteristics:

- Essential to the health of plants, animal and humans.

Deficiencies, as well as excesses, can be detrimental to

health

- Recycling: copper is one of the

most recycled off all metals.

Virtually all products made from

copper can be recycled and

recycled copper loses none of itschemical or physical properties

- Energy Efficiency: copper can

improve the efficiency of energy

production and distribution systems

- Antimicrobial Properties: copper and copper

alloy products can be used to eliminate

pathogens and reduce the spread of diseases

Copper SectorCopper is the base of societys infrastructure and is present everywhere

C S


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Tubes andaccessories, gasheating, bars,

switch, sockets,electric energy

wires andcables

Civil Construction

Electricvehicles,

brake pads,radiatorsand heatdiffusors

Automotive Sector

Copper-nickel alloysto preventcorrosion

Naval Construction

Water and gastubes, electronicconnectors, heatdiffusors, electric

engines and cables

Industry

Wires andconnectors

Telecommunications

Circuits,wires and

connectors

Eletroelectronics

Copper alloys used inbuttons, zipper, buckle,

jewelry, surgicalinstruments and

military applications

Dressing, Decoration and Specialties

Wires and energycables, solar panels,

wind turbine andethanol production

Energy

Copper SectorCopper is widely used in all sectors

C S t


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40

1.0

2.5

0.3

1.4

2.2

2.72.9

3.1

2012 2013 2014 2015E 2016E 2017E 2018E 2019E

7.7 7.77.4

7.16.8 6.6 6.4 6.3

2012 2013 2014 2015E 2016E 2017E 2018E 2019E

3.4 3.3 3.33.5

3.7

4.1 4.0 4.0

2012 2013 2014 2015E 2016E 2017E 2018E 2019E

Global GDP Growth (%) China GDP Growth (%) Brazil GDP Growth (%)

Global economy with sustainable growth in coming years will support copper demand

Despite Chinese deceleration, growth rates are still very high, while Brazil presents a high potential

growing market

Source: IMF

Copper SectorGlobal GDP drives copper demand

C S t


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41

Concentrate Production (Mt) Smelter Production (Mt) Refined Consumption (Mt)

China is the most important player accounting for 44% of global consumption

China also holds a disproportionate amount of global stocks

Strong growth of copper mining supply in 2013/2014 puts award pressure leading to higher TC/RC (large discount to

smelters)

Expected growth in refined consumption will surpass growth in production, supporting higher premiums

Refined copper prices to come under downward pressure over the next few years

Source: WoodMackenzie, December 2014

11.1 10.9 11.0 11.4 11.2 11.6

4.3 4.7 5.36.0 7.1

7.7

2011 2012 2013 2014 2015E 2016E

15.4 15.6 16.317.5 18.3

19.3

14.8 15.216.5 17.0 17.7

18.7

1.4 1.51.6 1.7

1.71.8

2011 2012 2013 2014 2015E 2016E

16.2 16.818.1

18.7 19.520.5

11.8 11.4 11.4 11.9 12.3 12.6

7.8 8.2 9.29.9 10.3

10.7

2011 2012 2013 2014 2015E 2016E

19.6 19.620.6 21.8

22.623.3

RoW China RoW China RoW China

Copper SectorProduction , refining and consumption drive copper price

C S t


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42Source: WoodMackenzie, LME

Copper SectorRecent drop in copper prices caused by macro scenario and oil prices

5.000

5.500

6.000

6.500

7.000

7.500

Improving economic

sentiment and decliningLME stocks boost prices

Sharp

price fall

leads to

scrap

vacuum

Weak manufacturing

data and credit issues

in China

SRB buying

Quingdao

warehousefraud

uncovered

Generally positive macro-indicators and falling

stocks supports prices

Prices slides

as global

growth fears

escalate as oil

price tumbles

Strong USD

pressuringcommodities

LMEUS$/t

Copper Sector


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43

0

5

10

15

20

25

30

35

2000 2005 2010 2015E 2020E 2025E 2030E 2035E

milliontones

North America Europe China Other Asia Row

0

5

10

15

20

25

30

35

40

45

2000 2005 2010 2015E 2020E 2025E 2030E 2035E

milliontonnes

Construction Electrical Network Industrial Machinery Transport Consumer & general

Wire rod

74%

Billet

13%

Cake/Slab

13%

Electrical

conductivity

59%

Heat

transfer

9%

Aesthetics/

malleable

28%

Signal

transfer

4%

Refined Consumption by Region Total Consumption by Industry Sector

By First Use By Market Sector By Property

Construction30%

Electrical

Network

19%

Industrial

Machinery11%

Transport

12%

Consumer &general

28%


Copper SectorSustainable global copper consumption growth

Copper Sector


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44

China (kt) Brazil (kt)

0

5000

10000

15000

20000

25000

30000

35000

1960 1970 1980 1990 2000 2010 2020 2030

1970 -19793.4% growth p.a.

1960 -1969

4.7% growth p.a.

1980 -1989

1.8% growth p.a.

1990 -1999

3% growth p.a.

2000 -2009

1.5% growth p.a.

2010 -2019

3% growth p.a.

2020 -2035

1.5% growth p.a.

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

1960 1970 1980 1990 2000 2010 2020 2030

1970 -1979

8% growth p.a.

1960 -1969

3.5% growth p.a.

1980 -1989

5.9% growth p.a.

1990 -19999.6% growth p.a.

2000 -2009

15% growth p.a.

2010 -2019

5.7% growth p.a.

2020 -20352% growth p.a.

0

100

200

300

400

500

600

700

800

900

1960 1970 1980 1990 2000 2010 2020 2030

1970 -1979

13.1% growth p.a.

1960 -1969

8.7% growth p.a.

1980 -1989

-3% contraction p.a.

1990 -1999

9.2% growth p.a.

2000 -2009

-0.5% contraction p.a.

2010 -2019

2.2% growth p.a.

2020 -20352.4% growth p.a.

Global (kt)

Global refined copper demand still driven by China

(44% of global demand in 2013 expected 48% in2020, a 7% CAGR)

Main drivers:

Global GDP growth Emerging markets growth

Infrastructure and consumer goods sectors Use of new technologies


Copper SectorChina still is the main driver of global copper consumption

Copper Sector


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45

19.7 20.220.8

22.123.0

24.0 24.3 24.4

2011 2012 2013 2014 2015E 2016E 2017E 2018E

Global Refined Production (Mt) Global Refined Consumption (Mt)

19.6 19.620.6

21.822.6 23.3

23.9 24.4

2011 2012 2013 2014 2015E 2016E 2017E 2018E

Consumption to outpace production in next years, supporting current premium levels


Copper SectorRefined copper imbalance continues to benefit smelters

Copper Sector


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46

TC/RC (US$/t and R$/t)* Metal Premium (Cathode)

Metal Premium is charged by a metal producer to itscustomer

Theoretically to cover the cost (transportation,

warehousing, financing, alloying and marketing costs) of

shipping metal to a customer but is a market

driven/negotiated commercial term

Premiums are set once a year

Revenue for a refiner and cost to a consumer

Treatment Charge & Refining Charge is a deduction fromthe payable copper

Theoretically what it takes to convert a tone of

concentrates into metal but is a market

driven/negotiated commercial term

Charged by a smelter to a mine

Realized TC is negotiated annually each year

Revenue for a smelter and cost to a mine

*Considering 30% Cu concentrate

Source: Company and Bloomberg

High copper concentrate inventories led to TC/RC growth in recent years together with tightness in

physical market contributing to higher premiums

Coppe SectoTC/RC and Premiums at historical highs support smelters growth

perspectives

2009 2010 2011 2012 2013 2014

Exports Premium

Domestic Premium

254 310 352388

510610

447519 688

838

1,199

1,824

2010 2011 2012 2013 2014 2015 YTD

US$/t R$/t

Copper Sector


47/49

47Source: WoodMackenzie, December 2014

0.6

2.3

0.7

3.6

0.2

13.6

0.7

0.1+2.7

-0.4

-0.6

+1.1

-0.4

+0.6

-2.9

+0.4

Demand

Surplus

Deficit

Cathode deficit in China and other regions create exports opportunities, also benefited by USD

appreciation

Global Cathode Demand per Region - Mt

2014e demand: 21.8 million t

2014e output: 22.1 million t

Copper SectorRegional imbalance creates interesting export opportunities

Copper Sector


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48

212

175

257

238

280 280

2011 2012 2013 2014 2015E 2016E

214221

269

294

356377

2011 2012 2013 2014 2015E 2016E

452

395419

442 453474

2011 2012 2013 2014 2015E 2016E

Concentrate Production (Kt) Smelter Production (Kt) Refined Consumption (Kt)

Refined consumption still expected to increase despite economic slowdown

Copper consumption growth in Brazil is supported by:

recovery in domestic industrial production (end of Port War)

growth in primary consumption and Real Estate sectors

investments in ground transportation, electricity and infrastructure

Paranapanema is the only Brazilian smelter with 100% refined copper domestic production


ppBrazilian copper industry follows the global path, despite consumption

affected by economic slowdown


49/49

IR Contacts:

[email protected]

+55 11 2199-7914/7945/7845

http://ri.paranapanema.com.br

Access our website for more information and download the modeling guide

Investor Relations
mailto:[email protected]://ri.paranapanema.com.br/http://ri.paranapanema.com.br/mailto:[email protected]

Documents

201508 Corporate Presentation PMAM3 v18(EL)